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UK needs competitive nuclear electricity sector to aid FiT CfD regime

02 May 2012 20:50:43 | edem

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The UK must ensure competition between generators within its nuclear power renaissance, or risk jeopardising the preferred market-based price-setting method under its electricity market reform programme.

The centrepiece of the market reform programme, long-term feed-in tariffs with contracts for difference (FiT CfD), is intended to ensure investment in three forms of low-carbon power generation: renewables, nuclear, and carbon capture and storage.

The Department of Energy and Climate Change (DECC) will initially oversee the setting of the FiT CfD "strike price" - a centrally controlled approach that DECC is keen to move away from.

An auction-based system will be used thereafter. Transmission system operator National Grid is the front-runner to oversee it, with DECC deciding when to move to its preferred market-based system.

This shift can take place only if more than one nuclear generator is available to bid into any auction further down the line - a state of affairs that is far from guaranteed.

"We want to move to market-based systems and tendering as soon as we can, which means we need to have more than one player in any one market," DECC energy markets director general Simon Virley said. "And we need to have technologies at a sufficient state of maturity to be able to bid into those auctions."

Stuttering

The UK's nuclear new-build programme involves just two generator consortia after Germany-based utilities RWE and E.ON pulled out of the Horizon Nuclear Power venture (see EDEM 29 March 2012).

The first of the two remaining joint ventures, EDF Energy and Centrica, is aiming to commission its 3.2GW Hinkley Point C plant in 2019, although this date could be pushed back by up to two years, according to a government-commissioned study published on Tuesday (see EDEM 1 May 2012).

The second, NuGen, is a consortium of Iberdrola and GDF Suez. It hopes to make its final investment decision by 2015.

UK utility SSE, which was a partner in NuGen, has also walked away from the programme (see EDEM 22 September 2011).

The hope is that DECC will be able to negotiate a strike price that tempts more utilities to take a slice of the UK's stuttering new nuclear programme - or abandon the idea of market forces playing a role in the FiT CfD regime.

"I'm not worrying about what happens with other joint ventures," EDF Energy business-to-business director Sid Cox told ICIS.

"Very clearly for EDF, we're concerned that the structures are right for us to make an investment decision and to deliver the renaissance of new nuclear build in the UK. Providing the environment and the policies are right for a player like EDF Energy I'm sure that will encourage other players to come into the market place."

A DECC spokesman said: "The setting of strike prices is a matter for government. We will continue to work closely with industry on the design of our electricity market reforms, including the contracts for difference."

Under the strike price proposals, generators will sign contracts with a counterparty based around the strike price. If wholesale power prices settles below the set strike price, generators will be reimbursed the difference by the counterparty.

But should the wholesale power price climb above the strike price, generators will be required to pay back the difference. JS

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